CHANOS: Here's why China got so bad in 2015

After increasing by over 150% during a year-plus rally, the
country's stock markets crashed twice — in June and in August —
giving up all their gains for 2015.

Indexes for key drivers of the country's economy, such as real
estate, manufacturing, and exports, started flashing red.
September's purchasing managers index hit its worst read since
2009, the depths of the financial crisis.

Last month, the country devalued its currency.

In all this chaos, a key question has been: Why is this happening
now?

At a debate at New York City's China Institute on Tuesday,
short-seller Jim Chanos of Kynikos Associates — a well-known
China bear — explained why.

"What made 2015 a little more important," Chanos said, "was the
impact of the Fed interest-rate decision ... The possibility of
an RMB [yuan] policy decision in August ... and the government's
missteps in handling the stock market run-up and drop."

Together, he continued, those issues created a "heady witches'
brew of changing perceptions on China."

Until just a few weeks before the Federal Reserve's September
decision, the world of finance and money thought the central bank
might end its financial-crisis-era 0%-interest-rate policy and
raise rates by 0.25%.

Markets were bracing themselves. A rate hike would have been a
statement of confidence in the US economy. The US dollar
strengthened, in part in expectation of a rate hike, while
money started flowing out of China
at the fastest rate in around a decade.

The yuan is pegged to the dollar, and as the dollar strengthened,
so did the yuan. That made Chinese exports more expensive. In
August, the government found out that July exports cratered,
falling 9% from the same time a year before.

Even though the government recognized that its
"new normal" plan would cause the economy to slow down, it was
not ready for a loss of that magnitude. The government decided to devalue the yuan,
which has since fallen 4%.

The government doesn't want it to fall anymore, though, so it has
been using its reserves to prop up the currency. Analysts
estimate that it may have
burned $94 billion to $110 billion on this defense in August
alone.

The Chinese people obliged their government and then some.
Mainland indexes in Shanghai and Shenzhen rallied over 150%.

But that was until June 12, when both of them started cratering.
The government threw hundreds of millions of dollars at the
problem to make it go away. It canceled initial public offerings
and new share issues. It went after "malicious" short-sellers in
the market.